Apple on Agency Pricing Model: We Can’t Treat Publishers Any Differently Than We Treat App Developers

Apple’s 30% revenue share policy is universal, which may be their first line of defense in their ongoing settlement with the Department of Justice regarding controversial iBook pricing.

If you’re not yet familiar with Apple’s fight with the Department of Justice, you can either read here for the full details or can tune in below for the gist:

The Department of Justice filed an antitrust lawsuit against Apple and five publishers (Hachette, HarperCollins, Macmillan, Penguin and Simon & Schuster) over allegations of fixing e-book prices. The lawsuit says that Apple and the aforementioned publishers teamed up to battle Amazon’s low eBook pricing model.

Three of the five publishers (HarperCollens, Hachette and Simon & Schuster) have decided to settle with the DOJ to switch to Amazon’s pricing. Meanwhile, Apple and publishers Macmillan and Penguin plan to fight it out in court as they strongly believe they’ve done nothing wrong.

A report on The Wall Street Journal, which is owned by HarperCollins’ parent company, News Corp, has suggested that Apple has simply treated e-books, magazine and newspapers like apps, where publishers get to set their price and Apple takes a 30% revenue share. The Wall Street Journal’s L. Gordon Crovitz recounts his interview with Senior Apple Executive Eddy Cue:

“I don’t think you understand. We can’t treat newspapers or magazines any differently than we treat FarmVille.” … With those words, senior Apple executive Eddy Cue stuck to his take-it-or-leave-it business model of a 30% revenue share payable for transactions through the iTunes service. Despite my arguments to Mr. Cue in Apple’s Cupertino, Calif., offices last year on behalf of news publishers seeking different terms, to him there was no difference between a newspaper and an online game.

While Crovitz believes that DOJ’s case against Apple and the publishers is misguided, it does have some merit as “most favored nation” clause in Apple’s contracts with publishers didn’t allow them to offer e-books at a lower prices than what they offered on Apple’s iBookstore.

At the same time, as CIO’s Tom Kaneshige points out, Amazon’s pricing model also had its problems:

Amazon set the price of an e-book at $9.99, a low-ball number with a tiny, if any, margin. Critics point out that Amazon overall makes little profit on a whopping $48 billion in revenue. Amazon’s goal is to offer e-books at a huge discount and seed the e-book reader market with Kindle devices, which, in turn, will create a monopoly that forces customers to buy e-books only from Amazon. [..]

We can thank Apple for putting the kibosh on Amazon’s evil monopolistic scheming. With the iPad, book publishers had another e-book distribution option. E-books on Apple’s iBookstore rose to the range of $12.99 to $14.99 under Apple’s agency pricing model, which allows book publishers to raise the price of an e-book while Apple takes a 30 percent cut. As a result, Amazon’s market share fell to 60 percent.

The agency pricing model has been more favorable for publishers, while Amazon’s pricing model was more favorable for consumers and to Amazon, but at the expense of publishers.

It’ll be interesting to see how this will pan out. We’ll keep you updated.

Do they honestly believe Amazon could have become a monopoly in the e-book market? Maybe in e-book readers but definitely not in e-books. How much infrastructure is really needed to provide e-books? And Apple’s argument has some logic but they included the clause that they get the lowest price so there argument goes out the window. They may have not exactly colluded with the publishers but they knew what would result with the Agency model. And for that they will probably be found not guilty although I believe they are. The higher prices should have benefited the Authors but I highly doubt they gain anything from this, which is a shame.

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